Today's Local Real Estate News: "Florida homes are overvalued by 40 percent."

The Sun-Sentinel explains how the mortgage mess is affecting the rest of the economy:

“An increasing number of homeowners and prospective homeowners are getting caught up in the fast-spreading mortgage crisis that is claiming victims from all income levels and demographic groups. Many are trying desperately to get their loan terms reworked but are finding it's not possible in a tightened market.”

“For five years, the housing boom put money in the pockets of lenders, brokers, realtors and investors and granted easy mortgages to homeowners with both good and blemished credit. But as home prices decline and interest rates climb, the cracks in the housing market's foundation are widening.”

“Exotic mortgages, once hailed for helping to increase U.S. homeownership to its highest level at 68.9 percent, have become the undoing of an entire industry and, most heartwrenching, millions of homeowners.”

“Loans with adjustable rates, payment choices and loose requirements have trapped borrowers in too-high payments with few options for escape. Some have taken on second and third jobs, depleted savings, retirement and college funds and wrestled with lenders to stave off foreclosure. Those who fail see their homes sell to the highest bidder at an auction.”

“‘The increasing availability of mortgages has been an important and positive long-term trend,’ said Doug Elmendorf, a Brookings Institution economist. ‘But like many positive developments, this one was taken to an unjustifiable extreme.’”

The Palm Beach Posts expands on this issue:

“For most of this decade, buyers of homes and businesses enjoyed "easy" credit, allowing them to get low-interest loans with few questions asked.”

“Suddenly, credit has become ‘tight.’ That means people with spotty credit records are no longer getting mortgages, the largest home borrowers are paying higher interest rates, and some corporate buyouts are in jeopardy.”

“But how did credit get so easy in the first place - and what's making it so tight now? And will any of this matter to people who aren't buying a house or a corporation?”

“Yes, it may well matter, many economists say. They say credit troubles could further depress residential construction, which would push up unemployment. That, in turn, would shake consumer confidence and reduce sales of everything from cars to Christmas presents. Rising loan defaults also could further rattle financial markets. All of this together could trigger a severe recession, perhaps for the entire global economy.”

The mortgage mess is not only affecting the economy, it’s affecting local neighborhoods. The Sun-Sentinel explains:

“Miramar Code Enforcement Officer Paulina Vial crunched through knee-high grass, walked past multiple violation notices posted on the abandoned home's front window and a mailbox brimming with mail, and came to the backyard pool filled with thick, green scum.”

“When a neighbor first complained about the house on Miramar Parkway, it was for sale. But since then, Vial said, the owner gave up and left. It now sits vacant and unkept, a local eyesore and headache, one of a growing number of derelict South Florida properties left by a busted real estate market and rising foreclosure rates.”

“Code enforcement officers throughout South Florida have reported a rise in such homes, with neighbors calling to complain about uncut lawns, pools lacking child-proof fences and other symptoms of neglect and blight. At present, Miramar alone has at least 65 open cases involving unkempt properties in various states of foreclosure or bank repossession, up from the usual five a year.”

“Such vacant, foreclosed properties present unique challenges for the communities where they are located. Their owners are often less willing or able to correct a violation, and local governments have fewer enforcement options, said Bob Morgan, Miramar's code compliance manager.”

“In normal cases, if homeowners refuse to mow their lawn or clean it of trash, cities issue fines. If those fines aren't paid, cities slap a lien on the home and, when the home is sold, officials get their money.”

“But in cases of foreclosure, fines are no real threat to the owner, who has bigger financial problems, Morgan said. Putting a lien on the home doesn't work either because when a bank files for foreclosure first, it is legally entitled to money recovered from the sale of the property. Unless there is money left over — and there seldom is — the city gets nothing, Morgan said.”

The Miami Herald explains how unscrupulous foreclosure “rescue” firms are bilking troubled homeowners:

“For Kayhlene Gainer, it started two years ago, with a knock on the door on a Sunday spring afternoon.”

“The two women who stopped by her Coconut Creek home knew the 55-year-old widow was behind on her mortgage payments and facing foreclosure.”

“They promised help. For a fee, they would arrange the sale of Gainer's home so that she could stay there, paying rent. With the foreclosure halted, Gainer would get credit counseling and, after a year, a new mortgage and her home back in her name. She agreed.”

“Now, the Broward County schoolteacher and more than a dozen other homeowners contend in interviews and court filings that two companies -- National Foreclosure Management and American Home Rescue -- promised to save them from foreclosure but sucked out their home equity through excessive fees, what they claim is a fraud known as equity stripping. Then, they say, the firms skipped out, leaving owners scrambling again to prevent foreclosure on new, higher mortgages.”

“Mortgage fraud that flourished along with Florida's real-estate market in the past few years has many variations -- loan applicants who fudge their income to qualify for a higher-priced home, scam brokers who flip homes among fake buyers, pocketing the mortgage proceeds. But equity stripping, regulators and lawyers say, is especially pernicious because it preys on desperate homeowners looking for any solution that will stave off foreclosure and keep them in their homes.”

The Sun-Sentinel reports that builders are continuing to build despite the housing downturn:

“In South Florida, builders continue to struggle, with Lennar Corp. of Miami and Fort Lauderdale-based Levitt Corp., among others, reporting falling profits or losses as they discount homes and offer incentives that hurt their bottom lines.”

“Despite softer demand, housing starts rose in Broward County during the second quarter, according to a study released last month by Metrostudy, a West Palm Beach consulting firm.”

“Broward starts increased from 454 in the first quarter to 762 in the second. Palm Beach County had 423 housing starts in the second quarter, down 49 percent from 824 starts in the first quarter.”

“To lure buyers, builders are offering help with closing costs or lining up financing and working with lenders to lower interest rates on loans. Other builders are throwing in free upgrades and swimming pools to sweeten deals. That's allowing more buyers to consider new homes rather than existing ones.”

“‘Buyers are looking for exceptional deals,’ Brad Hunter, South Florida director of Metrostudy, said Friday. ‘They're getting that from the builders now.’”

This comes in the faceof much tougher lending standards. The Sun-Sentinel reports:

If you are a borrower — and who isn't — you need to know the rules of the mortgage market have changed. The credit crunch has taken some of the exotic loan options off the table. A lot of those loans were bad for borrowers. And some ugly lending practices are disappearing.

“You can still get a mortgage, even if your credit isn't great or you have only a small down payment, but you'll have a harder time qualifying for it.”

“For those with a mortgage who want to refinance, that's trickier. It can be done, but not if your property's value has fallen off a cliff.”

“‘Banks haven't stopped lending money to people, they've just made it more practical on both sides,’ said Casey Casperson, a senior loan officer with Chase in Palm Beach Gardens. ‘Now they're making borrowers prove they can pay it back.’”

“During the housing boom, lenders didn't require that of borrowers. As unbelievable as that sounds — let's give money to people without checking to see if they have a job or looking at their pay stub — it was the way the subprime market worked. What happened a few weeks ago was investors who bought those mortgages from lenders simply stopped buying. They feared the tumble in housing prices and the rise in mortgage defaults made these mortgages virtually worthless.”

Despite this, the Palm Beach Post explains that many seller remained dug in at their high prices:

“The supply of single-family homes and condominium units for sale in Palm Beach County's Multiple Listing Service reached 32 months' worth in June in the $200,000-$299,999 price range, according to Illustrated Properties Real Estate.”

That means it would take nearly three years to sell the 3,973 homes listed in that price range at the June sales pace - without adding another home to the list.

“The bleak story was the same in nearly every price range: too much inventory and too few sales, according to Illustrated Properties' figures.”

“In the $300,000-$499,999 range, which has included the county's median price since the boom times, sales declined 73 percent from June 2006 to June of this year. And although inventory was down 5 percent, it still would take 37 months to burn off the supply.”

“With the myriad problems besetting the housing market - from the subprime mortgage meltdown to fleeing speculators who left a trail of unsold "investments" that they finally dumped into the MLS - most housing forecasts are looking well into 2009 before the market recovers.”

“Meanwhile, most analysts agree that prices must drop. Jan Hatzius, senior economist for Goldman Sachs in New York, thinks Florida homes are overvalued by 40 percent. Florida's record home-price appreciation since 2000 makes it "the epicenter of the U.S. housing bust," he told the St. Petersburg Times.”

At the same time, the Miami Herald explains how employers are having difficulty hiring qualified employees due to high housing costs:

“Recruiting workers and keeping them has become increasingly challenging for South Florida employers, as home prices have soared out of reach even for many two-income households.”

“The numbers tell the now-familiar story of how we feel priced out:”

“Income gains have not kept up with soaring home costs. In fact, the rise in income per person here between 2000 and 2006 -- 28 percent to an estimated $39,900, says the University of Florida's Institute for Economic Competitiveness -- has been all but gobbled up by the rise in property taxes and insurance alone.”

“The property tax on a median-priced home in unincorporated Miami-Dade rose to $8,011 last year from $3,114 in 2000 and hit $7,988 in unincorporated south Broward, up from $3,505 in 2000. Homeowners insurance has skyrocketed similarly.”

“That's if you can afford to buy a home in the first place. Between 2000 and 2006, the median home price rose 172 percent to $375,800 in Miami-Dade and by 148 percent to $367,800 in Broward, says the Florida Association of Realtors. (The median is the point at which half the homes sold are above and half below.)”